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Fairchild Broadcasting Ltd.
Vancouver, British Columbia - 930342100
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Acquisition of the Assets of Cathay and Issuance of a New Licence to Carry on an Ethnic Regional Discretionary Specialty Programming Undertaking to Serve British Columbia
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Following a Public Hearing in Vancouver commencing 4 October 1993, the Commission approves the application for authority to acquire the assets of the existing ethnic regional discretionary specialty programming undertaking currently licensed to Cathay International Television Inc. (Cathay), and for a broadcasting licence to continue operation of the undertaking.
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The Commission will issue a licence to Fairchild Broadcasting Ltd. (FBL) expiring 31 August 1997, upon surrender of the licence issued to Cathay. The licence will be subject to the conditions specified in the appendix to this decision and in the licence to be issued.
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The term herein accorded the applicant will enable the Commission to consider renewal of this licence at the same time as that issued to FBL's sister company, Fairchild Communication Ltd. (FCL), for the national, Chinese-language specialty programming undertaking formerly operated by Chinavision Canada Corporation (Chinavision). FCL's application for authority to acquire the assets of Chinavision was recently approved in Decision CRTC 93-644 dated 19 October 1993.
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Although FBL and FCL are distinct corporate entities, a rationalization plan will be implemented to maximize the various synergies and economies that common ownership of the two undertakings will make possible. Given the strong linkage that will exist between the two licensee companies and their respective business plans, the Commission has determined that it would be appropriate to consider their licence renewals at the same time.
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FBL's ethnic service will remain similar in nature to that now offered by Cathay, and will include a mixture of drama, entertainment, news and public affairs programming. As is currently the case with Cathay, by condition of licence, the service shall not be distributed to any location outside of the Province of British Columbia without the licensee having first obtained the prior approval of the Commission. The principal language of broadcast will continue to be Cantonese, complemented by some programming in Mandarin and Vietnamese.
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FBL, like FCL, is owned 80% by Happy Valley Investments Ltd., a Canadian company controlled by Mr. Thomas Fung of Vancouver. Mr. Fung also holds an indirect 20% interest in CJVB Vancouver. The remaining 20% of FBL is owned by Condor Entertainment B.V. (Condor), a foreign company indirectly owned and controlled by Television Broadcasts Limited (TVB) of Hong Kong. TVB is the world's largest Chinese-language television producer; its programming is distributed to audiences in some forty countries around the world, including the Canadian audiences of Chinavision, Cathay and CFMT-TV Toronto. The undertaking currently operated by Cathay was originally licensed by the Commission in 1982 as an ethnic regional pay television undertaking serving British Columbia (Decision CRTC 82-240). It has operated as a predominantly Chinese-language undertaking since 1985, available principally in the Vancouver area, which is home to Canada's largest Chinese-speaking community. Cathay's status was changed to that of an ethnic regional discretionary specialty programming undertaking in 1992 (Decision CRTC 92-163).
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For its part, Chinavision was first licensed in 1984 to provide a predominantly Chinese-language, discretionary programming service to cable subscribers across Canada, except those in British Columbia (Decision CRTC 84-445). Chinavision has been competing against Cathay for subscribers in the Vancouver area since 1987, when Chinavision was permitted to extend its service into British Columbia (Decision CRTC 87-74).
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The purchase price relating to this transaction is $3.8 million. Based on the evidence filed with the application, the Commission has no concerns with respect to the availability or the adequacy of the required financing.
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However, because the Commission does not solicit competing applications for authority to transfer effective control of broadcasting undertakings, the onus is on the applicant to demonstrate to the Commission that the application filed is the best possible proposal under the circumstances, taking into account the Commission's general concerns with respect to transactions of this nature. As a first test, the applicant must demonstrate that the proposed transfer will yield significant and unequivocal benefits to the community served by the broadcasting undertaking and to the Canadian broadcasting system as a whole, and that it is in the public interest. The Commission has assessed the benefits identified by the applicant as flowing from this transaction and, in general, is satisfied that they are significant and unequivocal. The Commission is also satisfied that these benefits outweigh any concerns associated with the concentration of ownership that will result from this transaction, and with the reduction in the number of broadcast voices, particularly in the Vancouver area. The Commission has thus determined that FBL's application represents the best possible proposal under the circumstances and that approval of the transaction is in the public interest.
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According to the evidence, as presented both at the July 1993 hearing of FCL's application and at the more recent hearing of FBL's proposal in October of this year, there is little likelihood that, under separate ownership, both services would be able to continue in competition against each other in the Vancouver market and remain as viable undertakings. This point was emphasized by a spokesperson for FBL at the October hearing who noted:
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Firstly, the national Chinese-language television service can only be viable if it is successful in Vancouver; and secondly, the national Chinese-language television service can only be successful in Vancouver at the expense of the regional Chinese-language specialty service, as long as both services operate in head-on competition in Vancouver.
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Chinavision has been in financial difficulty since it was first licensed, and was in receivership at the time of the July hearing. In the case of Cathay, although this company has recently begun to earn modest profits, the parties to this transaction and several interveners saw this as being largely attributable to the fact that the company has held first option to purchase the British Columbia broadcast rights to the Chinese-language programs produced by TVB. The general consensus among those at the hearing was that, under separate ownership, Cathay's profits will disappear following removal from its schedule of much of the TVB programming; this is expected to occur within the next few months as a consequence of a new program supply agreement between TVB and FCL, the proposed terms of which were submitted to the Commission as part of FCL's application to acquire the assets of Chinavision.
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The Commission shares the concerns noted above and, for this reason, views as being the most significant benefit associated with this transaction the commitment given by the owners of FBL and FCL to ensure the long-term stability of both the national and the regional specialty services, without diluting the quality of either service:
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We are committed to maintaining two separate and distinctive services that will serve the best interests of the Chinese viewing public of British Columbia, and remain viable over the long term complementary to each other.
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The Commission notes in this regard the applicant's plans to change the current fee structure for the two services in the Vancouver market, lowering that charged for the regional specialty service and raising that charged for the national service. Both services will continue to be available on a discretionary basis, either in a package with other services or on a stand-alone basis. FBL indicated that it will increase the hours of operation of the regional specialty service by 18 hours per week.
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The applicant also committed to maintain, as part of the service, the same amount of programming in the Vietnamese language currently offered by Cathay, that being 15 hours per week, of which 3 hours will be locally produced. The Commission has required FBL to adhere to this commitment as a condition of licence. FBL stated that, while implementation of its rationalization plan would require technical and camera staff to be deployed in a cost-efficient manner, it was committed to hiring a news director and an on-air news anchor for the FBL service, both of whom will work independently of FCL's staff. The Commission also notes that FBL intends to obtain coverage of news events produced elsewhere in Canada by FCL; the Commission encourages the applicant to pursue the plans it outlined at the hearing to acquire the technical facilities that will enable it to obtain and air these Canadian news segments on the FBL service on a same-day basis.
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As a further commitment, FBL stated that it will establish an advisory committee for the regional specialty service separate from the one that now operates in Vancouver for the national specialty service. FBL also confirmed that each of these committees would report independently to its respective board of directors.
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The applicant's benefit package includes a commitment to contribute $20,000 per year, commencing in year three, to a program development fund. This would have represented a total financial commitment of $100,000 over a seven-year licence term. In the circumstances, the Commission expects the licensee to make the first contribution of $20,000 to the fund in the broadcast year commencing 1 September 1994, and to contribute the same amount in each of the following four broadcast years.
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CANADIAN PROGRAMMING CONTENT AND EXPENDITURES
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The Commission notes the applicant's commitment to increase the amount of Canadian content from the current level of 29 hours per week required of Cathay to 33 hours 45 minutes per week, or approximately 31.5% of the total hours devoted to all programming. During peak evening viewing hours (identified by FBL as those falling between 7:30 p.m. and 10:30 p.m.), the applicant indicated that it would broadcast a minimum of 33% Canadian content. Adherence to these commitments shall be required by condition of licence, commencing 1 March 1994.
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With regard to expenditures on Canadian programming, FBL filed projections with its written application indicating that it would devote 26.6% of its gross revenues to such expenditures in the first year, falling to 19.8% in the last of a seven-year licence term. In a letter submitted following the hearing, FBL stated that it was prepared to expend a minimum of 27% of its revenues on Canadian programming on an annual basis.
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The Commission notes that the licence conditions applied to the national specialty service of FCL require it to expend on Canadian programming in the first year, 28.5% of the gross revenues earned by the service in 1992/93 and, in each subsequent broadcast year, not less than 29% of the gross revenues earned during the previous year.
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Given that the gross revenues earned by the regional specialty service are expected to be significantly less in the first year than those earned in 1992/93 by Cathay, it would be inappropriate to tie FBL's first year expenditures on Canadian programming to Cathay's revenue earnings in 1992/93. The Commission has thus decided to require FBL, by condition of licence, to expend a minimum of $180,000 on Canadian programming during the eight-month period between 1 January 1994 and 31 August 1994. This amount represents 27% of the gross revenues that the applicant projects to earn during that period. In the broadcast year beginning 1 September 1994, the applicant shall be required, by condition of licence, to expend a minimum of $281,000 on Canadian programming, representing 28.5% of its projected revenues for that year. In each of the last two years of its licence term, FBL shall, by condition of licence, expend on Canadian programming not less than 29% of its gross revenues earned during the previous year.
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In Decision CRTC 93-644, the Commission expressed concern regarding the potential for conflict of interest between TVB's indirect participation in the ownership of FCL and its role as program supplier to that company. Although FBL intends to acquire the bulk of its non-Canadian programming from sources other than TVB, a similar concern exists in the present case.
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In light of the above, given as well the linkage noted earlier between FCL and FBL, and as discussed with FBL at the hearing, the Commission has decided to impose a condition of licence on FBL, similar to that imposed on FCL, prohibiting any nominee, employee or representative of Condor, TVB, their affiliates or subsidiaries, or any person associated with these companies, from serving on FBL's Board of Directors or as an officer of the company.
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In Public Notice CRTC 1992-59 dated 1 September 1992 and entitled "Implementation of an Employment Equity Policy", the Commission announced that the employment equity practices of broadcasters would be subject to examination by the Commission. It encourages FBL to consider employment equity issues in its hiring practices and in all other aspects of its management of human resources.
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The Commission also notes FBL's commitment at the hearing to install and operate a TDD system immediately upon receiving authority to acquire the assets of Cathay. The Commission acknowledges the many appearing and non-appearing interventions submitted concerning this application by interested parties, primarily from within the Vancouver area, most expressing support for the application and their wishes that the highly-valued community service provided by Cathay be maintained under FBL's new ownership.
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Allan J. Darling
Secretary General
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Appendix to Decision CRTC 93-730
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Conditions of licence respecting the regional ethnic specialty programming service to be provided by Fairchild Broadcasting Ltd.
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1. The licensee shall not provide the service to any location outside of the Province of British Columbia without obtaining the prior approval of the Commission.
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2. The licensee, from the date it assumes ownership and control of the undertaking to 31 August 1994, and in each six-month period thereafter, shall devote to the distribution of Type A ethnic programs, i.e. those in languages other than English, French or native Canadian, not less than 60% of the total time
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i) during which programming is distributed on its undertaking, and
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ii) during the hours between 7:30 p.m. and 10:30 p.m.
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3. The licensee shall, in each broadcast year, devote to the distribution of feature films in English, French or a native Canadian language not more than 25% of the total programming time permitted for the distribution of programs in those languages.
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4. The licensee shall devote to programming in Vietnamese no less than 15 hours per week, including 3 hours of locally-produced programming.
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5. In the six-month period commencing 1 March 1994 and in each six-month period thereafter, the licensee shall devote to the broadcast of Canadian programs not less than
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i) 33% of the time between 7:30 p.m. and 10:30 p.m. and
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ii) 31.5% of the total hours devoted to all programming.
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6. The licensee shall expend on the acquisition or production of, or investment in, Canadian programs
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i) not less than $180,000 during the period of 1 January 1994 to 31 August 1994,
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ii) not less than $281,000 during the broadcast year beginning 1 September 1994, and
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iii) in each subsequent broadcast year, not less than 29% of the gross revenues earned by the licensee from the service during the preceding broadcast year.
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7. During each clock hour, the licensee shall not distribute more than eight minutes of commercial messages of which no more than four minutes shall be local commercial messages.
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8. The licensee shall adhere to the guidelines on gender portrayal set out in the Canadian Association of Broadcasters' (CAB) "Sex-Role Portrayal Code for Television and Radio Programming", as amended from time to time and approved by the Commission.
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9. The licensee shall adhere to the provisions of the CAB's "Broadcast Code for Advertising to Children", as amended from time to time and approved by the Commission.
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10. No director, officer, nominee, employee or representative of Television Broadcasts Limited, Condor Entertainment B.V., their affiliates or subsidiaries, or any person associated with these companies, shall serve as a director or officer of the licensee.
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"broadcast year" means the total number of hours devoted by the licensee to broadcasting in a twelve-month period beginning 1 September in any year.
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"clock hour" means a period of 60 minutes beginning on each hour and ending immediately prior to the next hour.
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"expend on acquisition" means expend to acquire exhibition rights for the licensed territory, excluding overhead costs.
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"expend on investment" means expend for the purposes of an equity investment or an advance on account of an equity investment, but not overhead costs or interim financing by way of a loan.
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"expend on production" means expend on the following items associated with the production of a program:
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* talent fees (on air and other)
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* directly-attributable salaries and benefits
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* studio sets, properties and other production materials
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* use of remote and other production facilities
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* delivery of remote programs to the satellite uplink or main studio, and
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* any other matter directly related to the production of a program. "gross revenue" means the revenue derived from advertising, as well as from residential, bulk and Master Antenna Television (MATV) subscribers; it does not include revenue from Direct-to-Home (DTH) subscribers or any return on investment in programming.
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"officer" means the chairperson, president, vice-president,secretary, treasurer, comptroller, general counsel, general manager, managing director or any individual who performs functions for the licensee similar to those normally performed by an individual occupying any such office, and each of the licensee's five highest paid employees, including the above.
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"week" means a period of seven consecutive days beginning on Sunday.
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